If you’re looking for a simple way to manage your money that doesn’t take a lot of time and results in the highest likelihood that you keep more of your pennies in your pocket, I’ve done the hard work and found the solution for you.
I’ve experimented with many different styles of budgeting in the past
and I’ve listed them below so you can test them out for yourself and find perhaps a method of budgeting that may be better for you :
1. The Pay Yourself First System of Budgeting
- Here you automate or deposit income into your own savings account before you spend on any expenses. Ideally you care enough about your financial health to be aware of what your expenses are prior to transferring the money into your savings account.
The Good about Paying Yourself First Method Of Budgeting :
-If you’re already a person with great discipline, this can absolutely help you out.
-It places your savings goals and investing goals ahead all other concerns.
-You can make progress quickly and automate.
The Bad about Paying Yourself First Method Of Budgeting :
This is does not help you understand where you are financially, if you have debts, this could actively be hurting your progress as it doesn’t account for anything other than hitting a set savings number.
2. Using budgeting applications to manage your spending
This is where you record every payment onto your smart phone or tablet in an application designed to help you track and manage your spending, savings and investments, like the Wallet App . This can be an extremely useful and modern way to manage where your money is going.
The Good about using budgeting applications to manage your finances :
-It's easy to get a birds eye view of your spending.
-It's easy to stay aware of every dollar that you’re spending if used as the application plans
-It's easier to review your spending, get insights and even predictive messages from your application as technology improves.
The Bad about using budgeting applications to manage your finances :
-Many are sponsored by advertisers, so you get advertisements IN application.
-They automate the learning into data, so you don't get the visceral emotional feelings that of having to re-do a budget, because you failed, that stimulates financial progress.
- I found that these became very easy to ignore at any point in time I felt guilt around my spending because the smart device is already competitive for attention.
-It has a learning curve and requires you to submit your information to the application This depends on how integrated you are with your spending and personal information online it's only tedious if you manually enter your information.
3. Using the 50/30/20 Principle to manage your budget
This is a great, intuitive way of budgeting your money and building a system around it : 50% goes toward your needs 30% toward your wants 20% goes toward your savings and investments.
Its a very simple process that helps you distribute your paycheck automatically regardless of how big or how small it is.
The Good about using the 50/30/20 Principle to manage your finances :
-This principle works for any budget size or type as percentages aren’t fixed.
-It’s intuitive, simple to follow.
-It makes difficult decisions much easier and never stretches you reasonably beyond your total income.
The Bad about using the 50/30/20 Principle to manage your finances :
-This principle does not account for short term changes and is more of a rule than an actual method of budgeting.
- This principle doesn't account for extremely low earners in extremely expensive areas.
-This principle doesn't account for targeted savings goals especially for lower income earners.
4. Using the Zero-Based Budget to manage your finances
This is a personal favorite. With the Zero-Based Budget we distribute our income down to the very last dollar, so our income - expenses - (savings & investments) is equal to 0. It has to be done at the start of every new budgeting period to ensure that the budget is allocated based on what's currently happening, and where the money would be most useful during any given time. The Good about using the Zero-Based Budget Method :
-Allows you to know where your money is going before you’ve spent your first dollar, so there is a high sense of certainty.
-Is flexible based on what your needs are in a given time period.
-Shows a birds-eye view of your responsibilities in the form of a budget, so you're able to not only adjust finances, but your own life.
-Extremely strategic method.
The Bad about using the Zero-Based Budget Method :
-It does not allow much flexibility, in the event something falls unexpected, you’ll need to readjust money from one column to the next.
-It has to be done at the start of each pay period.
-It can be time consuming for first timers to the process.
-Requires you to list all of your expenses and income sources.
5. The 'Weekly Balance Method' to manage your money
This is a system where rather than budgeting for a month, bi-weekly or any set pay period, we budget for just a week at a time. This allows us to get a better grip on what the actual costs are on a weekly basis that gives us some more control.
The Good about using the 'Weekly Balance Method' :
-Budgeting for a week allows you to have a handle on your money in a very micro way.
-One week is far enough to enforce good habits, but close enough to keep awareness of what you're spending relative to what you have high.
-This budget is much more flexible than Zero-Based Budgeting and mistakes are easier to forgive as the period is much shorter. The Bad about using the 'Weekly Balance Method' :
-It requires you to have a really strong understanding of what your weekly costs are, so you can account for those in advance of creating your weekly budget.
-This can be very challenging to do if its your first time budgeting, because it does allow space to fail, which make good habits more difficult to implement. -You don't get to have excess and transfer money from the next week to the current week period, which means one bad night out could ruin the week for you financially, and there's no way to move money around. So now we're on to the big question...
Which budget saves the most money?
The budgeting system that I found to work the best for me, and actually get me to stick with the budget more than anything else is actually a combination I call the of 3 methods we've talked about before, that I call "The A-system budget"
The A stands for awareness, because any time that you’re in desperate need of money, you’re always disciplined and always able to find new money from somewhere. This is the same psychology behind the A-System.
STEP 1 The A-System starts with getting an overview of what you’re actually spending your money on. This only has to be done once. So getting all of the little things you usually let slip because its ‘not that important’ and then listing those along side all of the big expenses and working out what it costs to live. STEP 2
The second step is your first Zero-Based Budget, this requires you to now aim the money you have toward the goals you want to achieve. If you earn $1000 after taxes, and have $600 in expenses, you are remaining with $400 to deploy in any way you see fit. Into Savings, or Investments, or to pay down debt. That’s the beauty of this zero-based budget, you can use the excess money to relieve stress, that you can see clearly laid out in numerical form, rather than to buy new items. (Yes, I am biased toward helping you feel NOT BURDENED rather than fancy) STEP 3
The Final Step is the Weekly Balance Method. After you’ve already set aside money for the expenses that you’ll need to cover, and the most important things you have to do, it's time to deploy the remaining money, as you see fit on a weekly basis. This makes it easy to constantly be aware of the money you’re spending.
If you have $200 Remaining, you can deploy it as $50 a week for 4 weeks, or $100 for one BIG week where you're going to finally see Taylor Swift Live and $33.33 for each other week in the month. The world is your OYSTER a week at a time.
Happy Savings!
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